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Related entities for project bank accounts
The Building Industry Fairness (Security of Payment) and Other Legislation Act 2020 received assent on 23 July 2020.
This Act will replace project bank accounts with a new trust account framework, delivering a more streamlined framework. Read about the new trust account framework.
The following information only applies to project bank accounts for certain government contracts tendered after 1 March 2018 up to 28 February 2021.
If a head contractor decides that they need a project bank account (PBA) for a building contract and enter into a subcontract with a 'related entity', they and the subcontractor may have more compliance obligations.
The related entity provisions in the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) ensure that:
- subcontractors working on a building contract are paid through the PBA
- subcontractors' retentions are protected.
The provisions help head contractors meet PBA requirements.
Note: The related entity provisions don't apply to suppliers.
What is a related entity?
A subcontractor is a related entity for a head contractor if:
- for individuals: they're members of the same family (see definition below)
- for an individual/corporation: the individual, or a member of the individual's family, is a majority shareholder, director or secretary of the corporation or a related body corporate of the corporation; or has 50% or more interest in the corporation
- for an individual and a trustee of a trust: the individual or a related entity under another provision of section 19 is a beneficiary of the trust
- for corporations: they're related bodies corporate
- for a corporation and a trustee of a trust: the corporation or a related entity under another provision of section 19 is a beneficiary of the trust
- for trustees of 2 or more trusts: a person is a beneficiary of both trusts; or a person is a beneficiary of one trust and a related entity under another provision of section 19 is a beneficiary of the other trust
- the persons acquire interests in a landholding trust and the acquisitions forms evidence, giving effect to or arise from what is substantially one arrangement.
- the persons acquire interests in a landholding trust and the acquisitions form, evidence, give effect to or arise from what is substantially one arrangement.
'Family' is defined as:
- the person's spouse
- a parent of the person or the person's spouse
- a grandparent of the person or the person's spouse
- a brother, sister, aunt, uncle, nephew or niece of the person or the person's spouse
- a child of the person or the person's spouse
- a grandchild of the person
- the spouse of any person mentioned in the previous items (except the first item).
For a person, 'spouse' includes a de facto or civil partner.
Head contractor obligations
If a head contractor subcontracts to any person, corporation or entity who is a related entity under the BIF Act, they must complete a S21 notice of related entities form (PDF, 131KB), and provide a copy to the Queensland Building and Construction Commission (QBCC) and the principal for the building contract.
Submit this form within 5 business days of entering into the subcontract with a related entity.
The related entity subcontractor continues to be a beneficiary of the PBA and is paid from that PBA.
If the subcontractor further subcontracts any work, the subcontractor may be required to establish a PBA. If this is the case, the head contractor will need to pay into that PBA, as if it were the principal.
A subcontractor needs to establish a PBA (separate to the PBA established by the head contractor) if they meet all these criteria:
- are a first-tier, related entity subcontractor
- enter into a subcontract with a head contractor
- further subcontract all or part of the building work (i.e. enter into a second-tier subcontract or a 'sub-sub-contract').
They must comply with all the obligations under the BIF Act and operate the PBA as if they were a head contractor.
- paying all second-tier subcontractors (or sub-sub-contractors) as beneficiaries from the second-tier PBA
- using payment instructions to make those payments
- holding subcontractors' retentions in the retention trust account and disputed amounts in the disputed funds trust account where required
- providing all forms and notifications as required under the BIF Act, including payment instruction information to the head contractor (acting now as principal) and second-tier subcontractors.
The head contractor will make payments to the subcontractor into the general trust account of the second-tier PBA. They may pay themselves from this account according to payment provisions in Chapter 2 of BIF Act.
If you're a subcontractor needing to establish a second-tier PBA, read about the PBA obligations in the Head contractors guidelines (PDF, 981KB).
- Learn more about setting up a PBA.